U.S. President Joe Biden’s exit from the presidential race on Sunday could prompt investors to unwind trades betting that a Republican victory would increase U.S. fiscal and inflationary pressures, while some analysts said markets could benefit from an increased chance of divided government under the next administration.
The so-called Trump-trade, which presumes the former president’s tax policies will lift corporate profits, while undermining the country’s long-term budget health, gained ground following Biden’s disastrous TV debate last month.
It was especially visible in U.S. government bonds, with long-dated Treasury yields − which move inversely to prices − briefly rising on increased expectations that Republican presidential nominee Donald Trump would regain the White House after the debate and last weekend’s assassination attempt.
Although yields quickly retreated on signs of economic weakening, the move reflected investors’ belief that a Trump presidency could lead to inflationary policies and a more fiscally expansive stance. But Biden’s decision to step aside and endorse Vice President Kamala Harris to replace him as the Democratic candidate casts doubt over a Trump victory and will likely prompt investors to pare those bets.
Convention bump?Trump’s odds of winning in 2024 fell while Harris’ rose
Trump’s team has said his pro-growth policies would bring down interest rates and shrink deficits. Many market participants believe deficits will keep…
